International Arbitration Case Law: NML Capital v. Argentina


Facts of the case

In 1994, Argentina issued debt securities pursuant to a Fiscal Agency Agreement (“FAA Bonds”). A number of plaintiffs-appellees bought FAA Bonds starting December 1998 and the others purchased FAA Bonds on the secondary market. The FAA contains the “Pari Passu Clause” that provides as follows:

“The Securities will constitute … direct, unconditional, unsecured and unsubordinated obligations of the Republic and shall at all times rank pari passu without any preference among themselves. The payment obligations of the Republic under the Securities shall at all times rank at least equally with all its other present and future unsecured and unsubordinated External Indebtedness…”

The Court referred to the second sentence of the Pari Passu Clause as the “Equal Treatment Provision.” Following the 2001 default on the FAA Bonds, Argentina offered holders of the FAA Bonds new exchange bonds in 2005 and 2010 (the “Exchange Bonds”). Argentina continued to make payments to holders of those Exchange Bonds while failed to pay the defaulted FAA Bonds. After the default, the President of Argentina declared a “temporary moratorium” on payments on more than $80 billion of its public external debt including the FAA Bonds. Argentina has renewed the moratorium and has not paid the defaulted debt.

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